Prepared at the Federal Reserve Bank of New York and
based on information collected on or before September 28, 2012.
This document summarizes comments received from businesses and
other contacts outside the Federal Reserve and is not a
commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that
economic activity generally expanded modestly since the last
report. The New York District noted a leveling off in economic
activity, and Kansas City indicated some slowing in the pace of
growth. In general, other Districts reported that growth
continued at a modest pace.
Consumer spending was generally reported to be flat to up
slightly since the last report. A number of Districts
characterized retail sales as expanding at a modest pace, while
reports from New York, Chicago, and Kansas City indicated flat or
softening sales. Vehicle sales were also generally characterized
as stable but up from a year earlier and generally at favorable
levels. Used car sales were mixed. Most Districts described
tourism as fairly robust, though Kansas City noted some general
softening, while New York and Dallas indicated some scattered
signs of weakening.

Residential real estate conditions improved since the last
report. Most Districts reported strengthening in existing home
sales, while prices were described as steady to increasing, with
declining inventories noted in the Boston, Atlanta, Minneapolis,
Dallas, and San Francisco Districts. Residential construction was
also described as rising in most Districts. Commercial real
estate markets were mixed since the last report. Office markets
showed signs of softening in the northeastern Districts--Boston,
New York, and Philadelphia--while most other Districts reported
stable or mixed market conditions. Industrial markets showed some
strength in the New York, Philadelphia, Cleveland, and Atlanta
Districts, while softer conditions were noted in Richmond.

Conditions in the manufacturing sector were mixed but, on
balance, somewhat improved since the last report. The Boston,
Richmond, Atlanta, St. Louis, Kansas City, and San Francisco
Districts reported some expansion in activity, whereas New York,
Chicago, and Minneapolis reported some weakening in activity. The
nonfinancial services sector showed modest improvement in the
latest reporting period. Richmond, Minneapolis, Dallas, and San
Francisco reported some expansion in activity, while New York and
Philadelphia indicated steady or mixed conditions.

Overall loan demand was steady to stronger in most Districts.
Credit standards were little changed since the last report, and a
number of Districts noted improvements in loan quality or steady
to declining delinquency rates. Agricultural conditions were
mixed, with drought conditions continuing to adversely affect
much of the mid-section of the nation. Activity in the energy
sector remained robust.

Districts mostly reported little change in prices of both
finished goods and inputs. Prices for agricultural commodities
and petroleum-based products were generally reported to be
higher, while natural gas prices were said to be low or
declining. Employment conditions were little changed since the
last report. Several Districts continued to report shortages of
highly skilled workers, but otherwise wage pressures remained
modest. Philadelphia, Cleveland, and Chicago noted increases in
the costs of employee medical benefits.

Consumer Spending and Tourism
Consumer spending was mixed but generally reported to be flat to
up slightly over the latest reporting period. Retail sales were
said to have improved modestly in the Cleveland, Richmond,
Atlanta, Minneapolis, and San Francisco Districts, while sales
were characterized as flat to softer in the New York and Kansas
City Districts. In general, retail sales were reported to be
running only modestly ahead of a year ago. A number of reports
noted various factors affecting sales, such as rising gasoline
prices, political uncertainty, concerns about the "fiscal cliff"
and weather. Atlanta and San Francisco noted that discounters
have been outperforming traditional department stores. Cleveland
reported that back-to-school merchandise sold well, while Chicago
said that such sales were below expectations. Boston noted a
pickup in furniture sales, Richmond cited brisk sales at building
supplies stores, and San Francisco reported stronger demand at
restaurants and food-service establishments.

Vehicle sales were mixed but generally at favorable levels. Sales
of new vehicles were steady to stronger and running ahead of
comparable 2011 levels. Philadelphia, Atlanta, Minneapolis, and
San Francisco described sales as strong, while New York and
Chicago reported some moderation in sales in September, after a
fairly strong August. Kansas City and Dallas reported some
softening or leveling off in sales. The Cleveland and Kansas City
Districts noted that crossover SUVs have been selling well
relative to less fuel-efficient vehicles. Sales of used vehicles
were mixed, with San Francisco describing them as robust but New
York and Cleveland characterizing them as flat.

Tourism was generally described as steady at robust levels,
though there have been scattered indications of some softening.
Boston, New York, Philadelphia, Richmond, Atlanta, Minneapolis
and San Francisco described tourism as strong, whereas the Kansas
City and Dallas Districts indicated some signs of weakening. Even
Districts reporting strength noted some pockets of softening:
Boston reported a small drop in advance bookings, New York
indicated a dip in activity in mid-September, Richmond noted a
significant drop in government-sponsored bookings, and Atlanta
mentioned disappointing cruise bookings and on-board spending.
The Dallas District noted weakening travel demand from Europe and
Asia; Atlanta also indicated weakening traffic from Europe but
added that Canadian and Latin American visitors largely picked up
the slack.

Real Estate and Construction
Residential real estate showed widespread improvement since the
last report. All twelve Districts reported that existing home
sales strengthened, in some cases substantially. Selling prices
were steady or rising. Boston, Atlanta, Minneapolis, Dallas and
San Francisco noted declining or tight inventories, which have
put upward pressure on prices. Modest price increases were
reported in the New York, Richmond, Chicago, and Kansas City
Districts. New York and Richmond reported relatively strong
demand at the high and low ends of the market, whereas
Philadelphia and Kansas City noted relative strength for
mid-range homes; Boston indicated a shift in the mix toward lower
or medium priced homes. New home construction and sales were more
mixed but still mostly improved: increased construction and/or
new home sales were reported in the Atlanta, Chicago, St. Louis,
Kansas City, Dallas and San Francisco Districts. Multi-family
construction, in particular, was described as robust in the
Boston, New York, Atlanta, Chicago, and Dallas Districts.
Residential rental markets continued to be characterized as
strong, even in the New York and Atlanta Districts where rents
increased somewhat less strongly than in recent months.

Commercial real estate markets were mixed since the last report.
Office markets showed signs of softening in the northeastern
Districts--Boston, New York and Philadelphia--with New York
remarking on substantial new supply coming on the market in early
2013. In contrast, Atlanta, Minneapolis and San Francisco noted
some improvement, while most other Districts reported stable or
mixed market conditions. Industrial markets showed some strength
in the New York, Philadelphia, Cleveland and Atlanta Districts,
while conditions were described as sluggish in Richmond and mixed
in St. Louis. Atlanta noted weakness in the market for retail
space. Commercial construction activity was also mixed: Atlanta,
Minneapolis and Kansas City reported some improvement in
non-residential construction activity, while Richmond and Dallas
noted that activity was sluggish.

Manufacturing
Conditions in the manufacturing sector were mixed since the last
report, though on balance, more Districts reported that
conditions had improved than worsened. The Boston, Richmond,
Atlanta, St. Louis, Kansas City, and San Francisco Districts
reported that activity expanded, though growth was generally seen
as modest. Activity was reported as mixed in the Dallas District,
while the New York, Chicago, and Minneapolis Districts reported
that activity weakened, though declines were mild for the latter
two. Significant gains in manufacturing related to the
construction, energy, and transportation sectors were reported
across several Districts, with particularly robust gains tied to
the automotive industry. There were exceptions in the Kansas City
and Dallas Districts where manufacturing related to
transportation equipment was reported as mixed.

Steel production was said to be flat in the Cleveland and San
Francisco Districts, and lower in the St. Louis District.
Activity related to machinery and equipment was reported as lower
in the Philadelphia, Chicago, and Kansas City Districts. Weaker
sales growth in the high tech industry was reported by Dallas,
and Kansas City said that growth among high-tech firms remained
sluggish in its District. The Boston District noted some weakness
in the semiconductor industry, while the San Francisco District
said that new orders from the semiconductor industry had
improved. Manufacturing contacts in the St. Louis District were
tentative about the outlook for 2013, and contacts in the Dallas
District noted some uncertainty about the outlook due to the
upcoming election.

Nonfinancial Services
Activity in nonfinancial services was stable to slightly stronger
since the last report. The Richmond, Minneapolis, Dallas, and San
Francisco Districts reported that service-sector activity
expanded, while such activity was reported as steady in the New
York District and mixed in the Philadelphia District. Richmond
noted that business activity strengthened for professional,
scientific, and technical service firms, and Dallas noted
strength in energy, accounting, and audit-related services. There
was an increase in activity for a wide range of consulting
services in the Boston and Minneapolis Districts. Activity
related to health care was reported to be stable in the San
Francisco District, but increased significantly in the Boston
District. San Francisco reported continued sales growth for a
wide variety of technology services, and noted that demand picked
up for restaurants and other food-service providers.

Reports on goods transportation services generally remained
positive. A pick up in such activity was noted in Cleveland,
Atlanta, Richmond, and Dallas, while such activity was said to be
flat in Kansas City. Contacts in the Cleveland, Atlanta, and
Dallas Districts reported strong shipments of automotive,
construction, and energy-related products. Port activity expanded
to record levels in the Atlanta and Richmond Districts. Air cargo
volume increased in the Atlanta District, but declined in the
Dallas District due to weakness in the international sector.

Banking and Finance
Overall loan demand increased slightly on net since the last
Beige Book report. New York, Philadelphia, Cleveland, Richmond,
Atlanta, St. Louis, and San Francisco reported stronger loan
demand on balance, while Kansas City and Dallas reported flat
demand and Chicago reported somewhat weaker demand. Most
Districts reported an increase in mortgage lending, especially
for refinancing purposes. New York, Cleveland, St. Louis, Kansas
City, and San Francisco reported some increase in demand for
commercial and industrial loans, while demand for business loans
was weak in Chicago and Dallas, and was characterized as mixed in
Richmond. Demand for consumer credit, particularly for auto
loans, was said to be strong in the Cleveland, Atlanta, St.
Louis, Dallas, and San Francisco Districts, while consumer loan
demand was more limited in New York, Richmond, Chicago, and
Kansas City.

Credit standards were little changed since the last report.
However, New York noted some tightening for consumer loans and
residential mortgages, while Richmond and Chicago reported some
easing for commercial and industrial loans. Still, loans remained
difficult to obtain for many small businesses in the Cleveland,
Richmond, and Chicago Districts. Banking contacts in the
Philadelphia, Cleveland, Dallas, and San Francisco Districts
reported stiff competition among lenders. Philadelphia, Kansas
City, and Dallas noted general improvements in loan quality, and
delinquency rates generally held steady or declined in the New
York, Cleveland, and Dallas Districts.

Agriculture and Natural Resources
Agriculture conditions were mixed since the last report. Drought
conditions continued to hurt the agriculture sector in the
Chicago District, parts of the Minneapolis District, and the
Kansas City and Dallas Districts. However, agriculture activity
was reported as higher in the Atlanta and St. Louis Districts, as
well as in parts of the Minneapolis District, and was reported as
stable in the San Francisco District. The Chicago and Dallas
Districts noted that increased rainfall had improved crop
conditions. In the Dallas District, crops were reported to be
mostly in fair to good shape, with production levels ahead of
last year but below average due to ongoing dry conditions.
Producers in the St. Louis District reported that crops were
generally in better condition than at the time of the previous
report, and harvest rates for corn and rice were well ahead of
their five-year averages. Contacts in the Atlanta District
reported that the rise in some crop prices related to the drought
in the Midwest led to an increase in crop production in the
Southeast. Higher feed prices continued to adversely affect
livestock producers in the Atlanta, Chicago, Minneapolis, Dallas
and San Francisco Districts, though the Chicago District noted
some easing in higher feed prices which provided a bit of relief.

Activity in the energy sector remained strong, with the
Minneapolis, Kansas City, and Dallas Districts reporting robust
gains in activity. The Minneapolis District reported that oil
production hit a new record high in North Dakota, and the
Cleveland District reported that oil and natural gas production
held steady. Natural gas exploration was reported as lower in the
Kansas City District and in parts of the Minneapolis District.
Coal producers in the Cleveland District reported declines in
production.

Employment, Wages, and Prices
Employment conditions were little changed since the last report.
The Boston, Cleveland, Atlanta, Minneapolis, and Dallas Districts
indicated that employment levels were flat or up slightly, with
stagnant demand and uncertainty related to the upcoming
presidential election, U.S. fiscal policy, and European debt
issues cited by some as restraining hiring. The New York and
Chicago Districts noted weaker labor market conditions, and
conditions were described as mixed in Richmond. Firms in the St.
Louis District reported an increase in hiring plans. Several
Districts continued to report that employers were having
difficulty filling highly skilled positions. In response, a few
Districts noted that firms were starting to increase training
programs to meet their staffing needs.

Most Districts reported that wage pressures remained modest since
the last report, though an increase in the cost of employee
medical benefits was noted in Philadelphia, Cleveland, and
Chicago. To the extent that wage increases were observed, they
were concentrated among highly skilled workers in information
technology, health care, professional services, and some of the
skilled trades, according to reports from the Chicago,
Minneapolis, Kansas City, and San Francisco Districts.

Price pressures were said to be contained as most Districts
reported that both finished goods and input prices were little
changed since the last report. Higher prices were cited by some
Districts for agricultural commodities and petroleum-based
products, although low or declining natural gas prices were
reported in the Atlanta, Kansas City, Dallas, and San Francisco
Districts. Contacts in the Atlanta, Chicago, Kansas City, and
Dallas Districts noted that drought conditions continued to
result in higher feed prices. There were scattered reports of
higher crop prices starting to show through to food prices at the
consumer level. Atlanta reported an increase in corn and soybean
prices, while Chicago and Kansas City reported that these prices
declined somewhat. Slightly lower prices for some
technology-related products were reported in the San Francisco
District.

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First District--Boston
Reports from business contacts in the First District indicate the
region's economy is expanding at a modest pace. Most retail and
manufacturing contacts report sales or revenue gains from a year
earlier, although the manufacturers say growth is slower than
earlier in the year and some have seen actual declines.
Consulting and advertising firms are generally upbeat, with
results depending on specific client industries. Residential real
estate contacts note increases in sales and only small changes in
median sale prices. Commercial real estate leasing activity has
slowed somewhat, while investment conditions remain positive.
With the exception of a consulting firm that has expanded
recently and a manufacturer citing especially strong growth,
responding firms are doing only modest hiring. While contacts in
most industries mention the upcoming election, so-called fiscal
cliff, and Europe as risk factors increasing uncertainty, it is
only in commercial real estate leasing that respondents say
current activity levels are measurably damped by such
concerns.
Retail and Tourism
First District retailers contacted for this round indicate that
sales through mid to late September are slightly above 2011.
Year-over-year sales increases in recent months range from low
single-digit to high single-digit percentage gains, although one
retailer reports that its 2012 sales to date are 2 percent to 3
percent below last year's. Furniture sales have picked up after
declining during the summer, while spending on apparel and
household items remains strong. Contacts express some concern
that consumer sentiment could be negatively affected by domestic
politics and the fiscal cliff, which increases their uncertainty
about how well the end-of-year 2012 holiday sales season will
turn out. While such concerns lead retailers to expect the U.S.
economy will remain flat over the next 6 to 8 months, respondents
are nonetheless cautiously optimistic that their 2012 revenues
will end up slightly ahead of 2011 levels.

The Boston tourism industry continues to benefit from a rebound
in domestic and international business travel, although the
leisure sector has seen a small drop in advance bookings compared
to six months ago. The tourism industry has slightly downgraded
its overall forecast for 2012, but this year's performance looks
to be the industry's best since 1999-2000. Expectations are that
Boston tourism will be strong again in 2013, with revenues rising
slightly from 2012.

Manufacturing and Related Services
Discussions with manufacturing contacts in the First District
paint a picture of an economy that is growing slowly but, on net,
still growing. About half the respondents report a substantial
slowdown in growth or outright fall in sales in the most recent
period compared with a year earlier. Three contacts supplying
equipment to factories note weakness in the semiconductor
industry, which they say reflects its idiosyncratic cycle and not
the macro economy. A contact in the toy business reports that
orders for Christmas are coming later and later in the year,
partly because lead times have shrunk and firms can order in
September for November delivery.

Not all responding firms report softening. For example, a contact
at a pharmaceutical firm says the company's growth is strong. The
firm plans to hire 1,000 people over the next year, which
represents a 20 percent increase in headcount; the hires will be
mostly in sales and marketing.

For the most part, firms reporting weakness indicate it has yet
to affect either hiring or investment substantially. Only about
one-quarter of respondents say they are actually cutting staff;
for one firm, the layoffs are in Europe and another firm
attributes them at least partly to increased productivity.
Several contacts report that their firms are re-evaluating their
benefits structures as a way to conserve cash. No contact reports
making any adjustments or even projecting any adjustments to
their capital spending plans. Indeed, one contact at a semiconductor
equipment maker says they are maintaining their long-term
investment plans despite quarter-on-quarter sales declines on the
order of 20 percent in the third quarter which are expected to
continue in the fourth.

In general, firms remain somewhat tentative about 2013, although
this is partly because they are currently engaged in their annual
"planning cycles" for 2013. One contact in the industrial
distribution business says he expects they will plan for 1
percent to 2 percent growth in 2013, in line with Q3 this year;
by contrast, their 2011 plan for 2012 assumed 5 percent to 6
percent sales growth. One contact in the publishing business says
that they will "continue to thrive on low single-digit organic
growth." Many contacts say that slow growth is the "new normal."

Selected Business Services
Consulting and advertising contacts in the First District report
a generally positive, although not exuberant, third quarter. Only
one contact cites flat revenues, while the others note varying
levels of growth largely determined by the prospects of their
respective client bases. Marketing and advertising contacts
report weaker conditions than consulting firms. They note a large
degree of uncertainty in the market as well as a shift in demand
towards services focused on social media and e-commerce. Demand
for health care consulting services has skyrocketed due to
"unprecedented" levels of merger and acquisition activity among
health care providers and the need for improved efficiency as a
result of the ACA. At the same time, firms focused on the
pharmaceutical industry have experienced slow growth because
their clients have been hurt by blockbuster drugs losing patent
protection and cost pressures from governments. Economic
consulting remains strong, reflecting high levels of complex
high-stakes litigation; management and strategy consulting
contacts cite a recent upswing in business.

Contacts report little to no cost increases, with the exception
of higher travel costs, and are keeping their prices relatively
unchanged. Most contacts record some hiring, mostly in the low
single digits, although one contact in government policy
consulting has increased staff by 25 percent since last year to
address a large backlog and ongoing demand growth. Plans for
future hiring are modest.

Most contacts expect a continuation of current growth trends for
the rest of 2012 and are more bullish about 2013. Respondents
express concern about factors with the potential to slow the
macro economy, such as political uncertainty, the fiscal cliff,
and Europe. Several firms rely heavily on government spending and
are thus especially concerned with the fiscal situation and
upcoming election. Nevertheless, no respondent expects another
recession and the overall tone is cautiously optimistic.

Commercial Real Estate
Contacts across the First District report that commercial real
estate fundamentals have been basically flat in recent weeks.
Leasing activity is said to be down in Boston as firms say
political uncertainty makes them reluctant to make leasing
commitments in advance of the national election. At the same
time, the credit environment remains favorable, as interest rates
on commercial real estate loans remain very low by historical
standards. One contact notes that the supply of high-quality
commercial properties for sale has declined recently, and
hypothesizes that owners have nowhere better to park their money
right now. Construction activity is proceeding as expected on
large commercial projects in Boston. While the multifamily sector
remains strong across the region, with numerous apartment
buildings under construction in Boston in particular, one contact
surmises that additional apartment projects under discussion may
be delayed or shelved pending rent discovery once current
projects come on line.

Contacts express a mix of cautious optimism and generalized
uncertainty concerning the outlook; the fiscal cliff and Europe
are noted as key risks to growth. Some contacts mention a
longer-run concern regarding the consequences of an inevitable
eventual increase in interest rates; the risk is that net
operating incomes will not increase enough to offset increased
financing costs when loans currently being underwritten at very
low rates require refinancing.

Residential Real Estate
Year-over-year sales growth continued in August in both
single-family home and condominium markets throughout the First
District. According to contacts, low interest rates and
affordable prices contributed to improving sales figures, along
with increases in residential rents. Several contacts report
improving conditions for borrowers, but many contacts say that
qualifying for a mortgage remains difficult. As for prices,
contacts in the region report mixed movements in median sale
prices, with some areas experiencing modest price appreciation
and others moderate depreciation. In the Greater Boston area,
contacts say a slight decline in the median sale price was
unexpected in light of significant demand and dwindling inventory
levels; they attribute the decline to significant increases in
the sales of low to mid-tier properties. Throughout the region,
inventory continues to decline. Contacts say they fear declining
inventory will discourage buyers searching for homes as well as
potential sellers who may not be able to find another well-kept
property. Increasingly, properties in "move-in condition" receive
multiple bids, sometimes above original asking prices.

Contacts expect sales to continue to grow on a year-over-year
basis in the next several months. Nonetheless, many note that the
recovery remains fragile and could be derailed by deterioration
in economic conditions. Declining inventory levels also remains a
concern, but several contacts expect an influx of sellers in the
spring market. Median sale prices are expected to remain flat or
improve modestly in the coming months.

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Second District--New York
Economic activity in the Second District has held steady since
the last report. Prices of finished goods and services have
generally been stable. The labor market has shown further signs
of softening, as fewer business contacts report that they are
adding workers, and a major employment agency describes hiring
activity as sluggish. Retailers, including auto dealers, note
some leveling off in sales activity following increases. Tourism
activity has generally held steady at a high level, though there
were some indications of softening in mid-September. Residential
real estate markets have shown further signs of improvement.
Office markets have shown some signs of slackening, but
industrial markets have picked up modestly. Finally, bankers
report increased loan demand, except on consumer loans, steady to
tighter credit standards, and lower delinquency rates on
commercial loans and mortgages.
Consumer Spending
Retailers report that sales activity has remained flat in recent
weeks. A major retail chain reports that sales in the region were
sluggish in August and especially in September, running well
below comparable 2011 levels. Some of the weakness is attributed
to unseasonably mild weather, which dampened sales of seasonal
merchandise. A major mall in upstate New York describes sales
activity as "stagnant", with sales flat to down slightly from a
year ago in August and September. The pricing environment is
described as quite promotional, and acquisition costs of goods
are characterized as mostly stable to declining modestly. Auto
dealers in upstate New York report steady sales activity. New
vehicle sales were up 6-9 percent from a year earlier in August
but are projected to be flat to up slightly in September. Sales
of used cars have been mixed since the last report, while
dealers' service departments note some slowing in business.
Wholesale and retail credit conditions remain favorable.

Tourism activity has been steady at a fairly robust level since
the last report, despite hints of weakness in mid-September. A
trade association survey conducted in September indicated that 70
percent of hoteliers across New York State report that business
over Labor Day weekend was at least as good as in 2011.
Similarly, occupancy rates and room rates at Buffalo hotels are
reported to be running well ahead of 2011 levels. Manhattan hotel
occupancy rates were little changed at slightly over 90 percent
in August, with room rates continuing to run a modest 2 percent
ahead of a year ago. Anecdotal reports for September suggest that
business remained strong in the early part of the month but
tapered off a bit at mid-month. Similarly, weekly attendance and
revenues at Broadway theaters were running ahead of comparable
2011 levels in August and early September but slipped well below
year-earlier levels for the third week of the month. Finally,
consumer confidence fell in August and was little changed at a
low level in September, according to the Conference Board's
monthly survey of residents of the Middle Atlantic states (NY,
NJ, Pa).

Construction and Real Estate
Residential real estate across the District has continued to
improve. Housing markets in metropolitan Buffalo reportedly
flattened out in August but picked up sharply in September.
Northern New Jersey's housing market has shown further modest
signs of improvement, and there has been a sustained pickup in
rental apartment construction, as builders appear to see a
persistent shift toward renting. Home prices across northern New
Jersey appear to recovering gradually--an industry expert notes
that foreclosures and distress sales are no longer pushing down
prices of other properties, though they are dampening any
increase. Manhattan's co-op and condo market has remained
stable--both in terms of sales activity and prices. The upper end
of the market has been relatively strong, partly fueled by
foreign buyers. Market conditions are reported to have
strengthened in Brooklyn and especially Queens in the third
quarter, while Long Island's housing market is weak but
stabilizing. New York City's apartment rental market remains
robust: rents have decelerated a bit in recent months but are
still estimated to be rising at a 6-8 percent annual pace.

Commercial real estate markets showed signs of softening in the
third quarter. In particular, office vacancy rates in
metropolitan Syracuse, Albany, northern New Jersey, Westchester
and Fairfield counties climbed to their highest levels in a
number of years, while asking rents were flat to down slightly.
Office vacancy rates also edged up in Manhattan, after drifting
down over the first half of 2012. Sluggish leasing demand from
financial and other firms is reported to be more than offsetting
strong leasing demand from tech firms. A substantial amount of
office space is scheduled to come onto the Lower Manhattan market
in early 2013.

Industrial markets have strengthened: vacancy rates have declined
modestly since the beginning of the year in northern New Jersey,
Westchester and Fairfield counties, and the Buffalo and Syracuse
areas; but rates have held steady in Long Island and metropolitan
Rochester. Industrial rents have begun to rise modestly across
most of the District for the first time in a number of years.

Other Business Activity
Manufacturers across the District indicate some further softening
in general conditions since the last report, whereas contacts in
most other sectors report that activity held steady. Both
manufacturers and other contacts report little change in input
price pressures since the last report, though a number of
manufacturing contacts say they plan to hike selling prices in
the months ahead.

Labor market conditions across the District have been tepid since
the last report. Business contacts generally indicate that they
have scaled back hiring activity in recent months, and almost as
many business contacts say they plan to reduce as increase
employment in the months ahead. A major New York City employment
agency specializing in office jobs reports that hiring activity
remained sluggish after Labor Day--a time when recruitment
activity typically picks up. Moreover, the weakness is reported
to be fairly broad-based, though most evident in the finance
sector.

Financial Developments
Small to medium sized banks in the District report increased
demand for all loan types except consumer loans, where demand was
unchanged. Bankers also report increased demand for refinancing.
Bankers report some tightening in credit standards for the
household sector: roughly one in five bankers report tighter
standards for consumer loans and residential mortgages, while no
respondent reports easing standard in any individual loan
category. Respondents indicate a decrease in spreads of loan
rates over costs of funds for all loan categories except for
consumer loans. The decrease in spreads was most prevalent in
commercial mortgages. Respondents also indicate a decrease in the
average deposit rate. Finally, bankers report some decrease in
delinquency rates for commercial and industrial loans and
commercial mortgages but no change for consumer loans and
residential mortgages.

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Third District--Philadelphia
Aggregate business activity in the Third District has continued
to improve--growing modestly--since the previous Beige Book. A
couple of sectors grew faster than the average, while a few
declined slightly. Manufacturing activity declined somewhat,
although a slight increase in new orders may presage a turnabout.
Retail sales growth has continued at a modest pace since the last
Beige Book, while auto sales have continued to increase at a
strong pace. Lending volumes at Third District banks have
continued to grow modestly, and credit quality has continued to
improve. Sales of new homes have slowed since the previous Beige
Book period, while brokers report strong growth in sales of
existing homes (from previously low levels). Commercial real
estate contacts reported less leasing activity and continued weak
demand for new construction. Service-sector firms reported mixed
results with stronger tourist visitation, a slowing defense
sector, and modest growth across most other service sectors.
Price pressures have changed little since the last Beige
Book.
The overall outlook appears somewhat more optimistic relative to
the views expressed in the last Beige Book, as contacts are
beginning to look beyond the pending election and looming fiscal
cliff. Expectations among manufacturers improved significantly
for overall activity over the next six months, while plans for
capital spending and hiring were mixed. Auto dealers and real
estate firms are more optimistic, as their positive trends gain
traction. Holiday sales expectations are strong among many
general retailers. Financial- and service-sector contacts express
a mix of views regarding the future--generally positive with
varying degrees of caution.

Manufacturing
Since the last Beige Book, Third District manufacturers have
continued to report overall declines in shipments, but a slight
increase in new orders. Makers of lumber and wood products;
stone, clay, and glass products; fabricated metal products; and
instruments have reported gains since the last Beige Book. Lower
activity was reported by makers of primary metals, industrial
machinery, and electronic equipment. One manufacturer summarized
the broad economic climate as a summer slowdown with sequential
improvement, marked by a definite increase in August.

Optimism among Third District manufacturers that business
conditions will improve during the next six months has grown
significantly since the last Beige Book and is evident across
most sectors. Plans were recently announced to restart the third
of three District refineries that were all at risk of closing one
year ago; the other two were previously rescued. Firms have
raised their overall expectations of future hiring, but plans for
capital spending have softened since the last Beige Book.

Retail
Overall, Third District retailers reported little change between
the modest year-over-year sales growth in August compared with
July, although one contact stated that his store experienced the
strongest Labor Day weekend in years. This year's sunny weather
certainly helped compared with last year's storms. One department
store manager reported that back-to-school sales did well,
cold-weather clothing is moving better than last year, and
discretionary "fun" items are selling well. Retail contacts are
bullish for the upcoming holiday season, speculating that people
will be primed to respond to upbeat holiday advertising after the
long, negative political campaign season. An expectation of
greater seasonal hiring has been widely discussed. And the
holiday calendar provides a 32-day shopping season--the longest
possible.

There has also been little change in the pace of auto sales since
the last Beige Book. Pennsylvania dealers reported ongoing
moderate growth in August; New Jersey dealers recorded a third
consecutive strong sales month in August and described September
sales as "good." The outlook among dealers remains positive. One
contact stated "confidence is back, credit is back, and leasing
is back." However, dealers remain somewhat cautious through this
political season regarding consumer uncertainty.

Finance
Overall, Third District financial firms have reported continued
growth since the previous Beige Book. Loan volumes grew modestly
across most categories. Contacts describe fierce competition for
small business loans from large and small banks. Despite high
charge-off rates and ongoing household deleveraging, credit card
outstandings have been virtually flat since the last Beige Book.
Most contacts report that the financial health of households,
businesses, and financial institutions continues to improve. The
overall outlook among lenders remains positive.

Real Estate and Construction
Residential builders reported a drop-off in traffic and slower
sales in August and early September--a disappointing conclusion
to their primary sales season. Builders lament that people are
choosing to rent rather than buy even when local rents exceed the
total cost of owning a home. Residential brokers reported
somewhat stronger year-over-year sales growth in August than
expressed in the last Beige Book and continued strength into
September. Inventory levels of real estate listings remain at
lower levels than one year ago with no signs of a large emerging
shadow inventory. Multiple bids are reported for homes priced
between $250,000 and $400,000; more very high-end listings are
beginning to appear and test the market. Builders and brokers
remain cautiously optimistic.

Nonresidential real estate contacts reported a big slowdown in
August and a disappointingly small rebound in September. However,
conditions remain better than one year ago, with more prospects,
faster decision-making, and few downsizings outside of southern
New Jersey. There is very little demand for new office/commercial
buildings, but the industrial market remains strong, especially
in the Lehigh Valley and central Pennsylvania markets. Center
City Philadelphia and adjacent areas in West Philadelphia and the
Navy Yard are an exception, with very busy design/build work for
higher education, hotels, and multifamily apartments and
condominiums. However, many professional architects and
engineers--experienced and novice--remain out of work or
underemployed. Nonresidential real estate contacts retain an
outlook of slow, steady growth.

Services
Third District service-sector firms have reported mixed growth
since the last Beige Book. Tourist areas along the Delaware and
New Jersey shores, in the Poconos, around Philadelphia, and
throughout central Pennsylvania have reported strong visitation
and/or lodging numbers relative to recent years. Atlantic City
casinos and some neighboring shore areas were exceptions. Jersey
shore businesses expressed considerable disappointment over
cautious tourist spending; Delaware shore business also noted
some caution. However, the tourist season concluded on a high
note as the Labor Day weekend benefited by comparison to last
year when severe weather disrupted end-of-summer plans. District
staffing firms reported little change in orders, hiring mix, and
wages. One firm continued to report extremely busy orders for
manufacturing workers--better than in recent years--but expects a
seasonal decline beginning in October. Demand for
professional/business and health-care staff remains slower.
Defense-related firms reported that there are fewer large
contracts on which to bid and that they have continued to lower
their expectations for 2013 and 2014 as sequestration or an
alternative budget deal nears. Overall, other service-sector
firms report a modest but positive outlook for six months out.

Prices and Wages
Price levels have continued to show little overall change since
the previous Beige Book. Once again, cost factors have risen
slightly among manufacturing firms but the increase is less than
it was during the previous Beige Book; prices received by
manufacturers fell. Homebuilders and retailers indicated few
significant changes in their cost pressures or prices they
charge. One homebuilder attempted to raise prices but couldn't
make them stick. Real estate contacts continue to report that
lower-cost homes have reached a price floor in most markets and
are beginning to rise slightly in some neighborhoods. Leasing
agents have been unable to charge higher leasing rates in nearly
all markets, except for industrial space along the corridor from
Carlisle, PA, to the Lehigh Valley. Contacts from all sectors
report little or no wage pressures, other than for medical
benefits.

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Fourth District--Cleveland
Business activity expanded in the Fourth District since our last
report, although the rate of growth remains modest. On balance,
manufacturing output rose. In the real estate sector,
nonresidential construction picked up, while reports on
single-family housing starts were mixed. Sales of existing family
homes increased. Retailers and auto dealers saw a modest
improvement in sales during August and September on a
year-over-year basis. Shale gas activity continued at a robust
pace, while coal production fell below prior-year levels. The
slowdown in freight transport volume, which began in the second
quarter, has abated. And the demand for business and consumer
credit moved slightly higher.
Little net hiring was reported across industry sectors. We heard
a number of reports that recruiting qualified workers for open
positions remains difficult. Staffing-firm representatives said
that the number of job openings and placements has slowed during
the past six weeks. Vacancies were found primarily in healthcare
and manufacturing. Wage pressures are contained. Input prices
were stable, apart from increases in some agricultural
commodities and petroleum-based products.

Manufacturing
District factories reported that production levels were stable or
increased during the past six weeks, while new orders weakened.
Rising production was mainly limited to goods sold to the
construction, energy, and transportation sectors. Compared to
prior-year levels, output was higher for a majority of our
contacts. Several producers pointed to a rise in inventories, but
said that they are manageable. The outlook by manufacturers was
mixed. Steel producers and service centers reported that shipping
volume was flat or down and they continued to reduce their
inventory. A seasonal pickup that typically begins in September
has yet to materialize. Several contacts noted that competition
(volume and pricing) from offshore producers has intensified.
Steel producers do not expect market conditions to change
appreciably in the upcoming months. District auto production
recovered in August on a month-over-month basis, as auto plants
returned to normal production schedules. Compared to a year ago,
production figures were down slightly for domestic producers,
while showing a moderate rise for foreign nameplates. The latter
is attributable to the abatement of supply chain issues.

Little change in capacity utilization was reported, although a
majority of our contacts said that rates were slightly below
normal levels. Capital spending remained on track, but several
producers intend to delay some projects during the upcoming
months. Raw material prices were either flat or trended lower,
while finished goods prices were steady. Little change in
payrolls was noted, although attracting skilled workers remains
very difficult. Wage pressures are contained.

Real Estate
Reports from home builders on single-family housing starts were
mixed. Compared to a year ago, construction activity was
described as similar. On balance, builders expect a modest rise
in new-home construction in the near term. Spec building remains
on the low side, due in part to difficulty in obtaining
financing. List prices of new-homes held steady, though most
builders indicated that they have cut back on discounting. Sales
contracts were found across all price-point categories. Reports
of higher prices for lumber, shingles, and concrete were
widespread, rising mainly in the mid-single digits. Sales of
existing homes continued to show improvement, although inventory
is tight in the mid-price range.

Nonresidential contractors reported that business activity
continued to improve, and most are satisfied with their backlogs
going into 2013. Project work is driven by industrial
(manufacturing and energy), education, healthcare, multi-family
housing, and some public works. Most contractors expect that the
momentum built up this year will be maintained in 2013, though
some commented that customers seemed hesitant about moving
forward at this time. Material price increases were mainly
limited to petroleum-based products.

Residential and nonresidential builders reported little change in
their payrolls. Some seasonal layoffs are expected. A few
builders said that they would like to hire more workers but are
hesitant to do so because of uncertainty surrounding the upcoming
election and the fiscal cliff. Wage pressures are contained, but
sharp increases in health insurance premiums were noted by many
contacts. Subcontractors are holding their prices steady and many
are finding it difficult to recruit skilled trades.

Consumer Spending
Retailers reported a modest improvement in sales during August
and September relative to year-ago levels. Consumers have
responded positively to new lines of fall merchandise and
back-to-school sales were characterized as good. Some retailers
noted that consumers in middle-income brackets have entered a
holding pattern until after the elections. Our contacts expect
growth in the fourth quarter to be in the low-to-mid single
digits relative to 2011. Vendor pricing has been stable, with
little change in shelf prices. Grocery store chains reported that
their costs have risen due to the summer drought. Attempts at
passing through higher food prices were met with mixed results.
Capital spending for the year remains on target. Two retailers
noted that they may accelerate spending before year's end, mainly
for distribution equipment. No permanent hiring is expected other
than at new stores. The number of temporary workers expected to
be hired for the upcoming holiday season is planned to be a
little higher than last year.

New-vehicle sales were stronger in August and September when
compared with the same time period a year ago. Dealers reported
that sales of fuel-efficient cars and crossover vehicles are
doing particularly well. New-vehicle inventories increased since
our last report and most dealers described them as acceptable.
Dealers expect little change in monthly sales for the remainder
of 2012. Used-vehicle sales were flat, which was attributed
primarily to a lack of inventory. Most dealers reported that
credit is more readily available and leasing is growing in
popularity. Hiring for sales and service positions remains at a
slow pace. Recruiting qualified people is challenging.

Banking
Demand for business credit moved slightly higher since our last
report, with requests mainly for commercial loans and
refinancings. Several small business owners told us that it
remains difficult for them to obtain credit. The interest rate
environment was described as very competitive. Consumer lending
was up a little, driven by demand for auto loans and home equity
lines of credit. In the residential mortgage market, activity is
fairly strong. Although a majority of applicants are still
looking to refinance, many bankers noted an increase in
new-purchase requests. No changes were made to loan application
standards. Delinquency rates continued to improve across consumer
loan categories; however, several bankers reported an uptick in
delinquencies from commercial customers. Core deposits grew,
especially in transaction accounts. Bankers expect little change
in payrolls for the remainder of this year.

Energy
Conventional oil and natural gas production held steady during
the past six weeks, with little change projected in the upcoming
months. Wellhead prices for natural gas rose slightly. Drilling
rigs are migrating from other states to Ohio to take advantage of
the higher-priced wet gas found in the Utica shale. To date, 375
permits have been issued in Ohio for drilling horizontal shale
gas wells. Thirty wells are now producing, with 50 expected to be
in production by year's end. Coal producers reported production
declines in 2012 of between 10 and 50 percent over prior-year
levels due to lower demand from electric utilities and a stricter
regulatory environment. Reports of idled mines are widespread.
Spot prices for export metallurgical coal declined further, while
domestic steam coal prices rose slightly due to tight supplies.
Production equipment and materials prices were flat in most
categories, other than for diesel fuel. Capital outlays remain at
projected levels. Several coal operators announced layoffs. In
Ohio, a regulatory agency more than doubled its employment size
over the past 12 months to cope with expanding shale gas
activity.

Freight Transportation
Reports on freight transport indicated that volume is returning
to normal trends after a second-quarter slowdown. Industries
which contributed to the pickup include automotive, construction,
and shale gas. However, lower-than-expected harvests have
negatively impacted revenues for some carriers. Most of our
contacts believe that their companies' growth objectives for 2012
will be met. Apart from fuel prices, costs associated with truck
maintenance held steady. Carriers have successfully passed
through higher diesel prices via a surcharge. Reports on capital
spending were mixed. Half of our contacts said that 2012
expenditures are on track. Others reported a slowdown or
postponement in purchasing new trucks, citing a sluggish economy,
uncertainty about the fiscal cliff, and difficulty obtaining
financing. Hiring is for replacement and adding capacity.
Recruiting qualified personnel remains difficult, which is
contributing to wage pressures.

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Fifth District--Richmond
Fifth District economic activity improved modestly since our last
report. Most manufacturing contacts reported activity firmed
somewhat. Port activity continued to expand. Retailers reported
that sales grew on balance, and non-retail firms cited marginal
revenue expansion. Lending activity improved somewhat, although
most applications continued to be for refinancing. Residential
real estate activity continued to strengthen; however, areas of
weakness remained in the District. Tourism contacts reported
healthy bookings as the summer season ended. Commercial real
estate reports were mixed for private-sector projects and weaker
for government-related projects. Labor market reports were also
mixed, with accounts of modest increases in employment along with
major layoffs and hiring freezes. Price changes were generally
small in the manufacturing and services sectors in recent
weeks.
Manufacturing
District manufacturing activity firmed somewhat after having
softened in earlier months. An auto supplier reported that his
firm's sales continued to exceed expectations, which required
overtime and additional hiring. A manufacturer of wallboard
indicated that sales at his company rose, with the last few weeks
being the busiest this year. A manufacturer of residential door
frames said that demand in late summer was fairly flat, but he
expected sales to improve over the next six months. In contrast,
a producer of electrical components cited very weak business
conditions, which resulted in layoff announcements and plans to
close the factory at the end of this year. According to our
latest survey, growth slowed in prices of both raw materials and
finished goods over the past month.

Activity at most District ports expanded over the last few
months. Port officials reported that both import and export
activity strengthened, although one official attributed some of
the gain to increased market share. According to another contact,
the shipping season peaked earlier than in past years, which may
have been due to manufacturers and retailers moving goods in
advance of a threatened labor disruption at East Coast ports.
Nonetheless, imports were bolstered by continued demand for
commodities and components used by manufacturers. One contact
stated that exports to China of some commodities and bulk goods
were holding up better than expected. In addition, exports of
autos and heavy machinery to Europe remained strong.

Retail
Retail sales reports from our contacts were mixed, with modest
improvement on balance. In Virginia, a grocer stated that
customer counts were up, but shoppers were spending less, while
another grocery contact commented that he will be opening several
new stores by early next year. A major building supply firm
reported a significant increase in the volume of wallboard sales;
other inputs for major renovation work also picked up. Several
small retailers said that they were preserving margins by
reducing payrolls and cutting expenses. However, collections on
customer accounts have become a bigger problem, according to one
contact. Merchants remained somewhat guarded in their outlook for
spending during the holiday season. Small retailers were
conservative with inventories; they expected that their suppliers
would be flexible enough to make quick shipments if reorders
should be needed. To help push early purchases, several big-box
retailers were advertising a return of their lay-away programs,
and other merchants started offering lay-away for the first time.
In addition, a number of internet retailers were offering an
online lay-away program. District automobile sales varied,
according to dealers. A contact at a large dealership reported
high foot traffic, observing that buyers gravitated to "the
deals," such as substantial rebates. Retail prices rose at a
somewhat slower pace in recent weeks, according to our latest
survey.

Services
Non-retail services providers reported slight gains overall since
our last report. Business activity strengthened for professional,
scientific, and technical services firms; a contact at a Maryland
telecommunications firm noted that demand was strong for
tech-related security services. However, there were also reports
that the possibility of government spending cuts associated with
sequestration caused firms to delay business decisions. One
industry executive commented, "We are hoarding cash." Healthcare
firms continued to restructure to accommodate the post-reform
environment in that sector. According to a contact at a private
healthcare group, that organization had begun shifting away from
low margin, basic services. A Virginia airport executive noted
that increased passenger traffic in recent weeks had recovered
from a drop earlier in the summer. Prices moved up more slowly at
services firms.

Finance
Lending activity improved marginally from weak levels since our
last report. One banker reported continued strength in
refinancing demand, which accounted for three out of four
commercial loan applications. A North Carolina banker noted that,
while most home mortgages were for refinancing, applications were
fifty percent above normal levels and over one third were for
either purchasing or building a home. Demand for commercial loans
across the District was mixed, according to several contacts,
with modest improvements coming from the medical, legal, and
other services-related segments of the market. An official at a
large bank described consumer demand as remaining weak, with the
notable exception of auto loans, while business loans for capital
equipment improved slightly. Several bankers stated that credit
standards remained tight for consumer loans, but some easing had
occurred in order to capture attractive commercial loan
applications. A commercial banker said that uncertainty about
whether a successful SBA program would be renewed had curtailed
his ability to get approval of several viable small business
loans.

Real Estate
Residential real estate activity improved since our last report.
A Realtor in the Richmond area said that closings were up double
digits over last year and prices were rising slightly. Properties
below the $200,000 range, in particular, were selling more
quickly. However, an agent in the D.C. area indicated that
housing sales in the $800,000-plus range were rising relatively
quickly, adding that the lowest inventory for housing in eight
years was pushing up prices. A Realtor in the Fredericksburg area
reported that her agency was extremely busy for this time of year
and indicated that sales were up forty percent over last year;
she expected the stronger market to continue. Moreover, a
Maryland contact mentioned that foreclosures in central Maryland
had fallen thirty percent from the previous quarter, which
bolstered housing prices. In contrast, a report described the
housing market in North Carolina as mostly unchanged, with the
exception of an improvement in the Research Triangle. Also, a
source stated that there had been a slowdown in housing in the
Hagerstown area.

Commercial real estate and construction activity remained mixed
since our last assessment. A Realtor in North Carolina stated
that both leasing and sales activity had slowed since June, with
some tenants switching to shorter leases. Another agent reported
moderate increases in office leasing, especially in suburban
locations. Several contacts in Virginia and West Virginia noted
increased interest from clients but few closings. A Virginia
Realtor said that retail leasing had improved, but it was "still
a bumpy road" and that leases were "taking forever to close."
Both leasing and construction-related activity in the industrial
sector was sluggish. Several contractors reported that
government-related projects continued to weaken or decline. New
private sector projects also started to decline in recent weeks.
A large contractor in Maryland expected that few new projects
would emerge until after the election. However, a banker noted
that small developers were joining together to buy and renovate
low-priced B and C Class properties, in anticipation of an
improved real estate environment next year.

Labor Markets
We received mixed signals on labor market activity over the last
few weeks. A source from West Virginia reported that the state
experienced several major layoffs related to mine closings and
bankruptcies. A contact in Hagerstown said that the local labor
market continued to recover, but at a slow pace, and that the
area would lose a major manufacturer later this year. Moreover,
an auto supplier in Virginia stated that his firm had frozen
hiring and would reduce staff through attrition. In contrast,
several employment agencies cited an increase in demand for
workers, particularly among goods-producing industries. At a
North Carolina staffing agency specializing in finance, companies
were actively hiring staff and senior level accounting and
finance professionals. In the retail sector, an industry
representative mentioned that many small retailers expected to
add hours for permanent employees during the upcoming holidays,
rather than hire seasonal workers. According to our recent
surveys, average wages in both the manufacturing and services
sectors were growing at a slightly quicker pace than a month ago.

Tourism
Hoteliers, restaurateurs, and other tourism contacts reported
stable but solid leisure business going into the autumn season.
In addition, their outlook was upbeat for late fall and early
winter. An hotelier in western Virginia stated that business was
solid, with a trend toward more last-minute leisure bookings. A
tourism contact in Washington, D.C. reported seeing "tour buses
galore" and crowds on the mall. Tourist activity on the outer
banks of North Carolina was steady, and good attendance was
expected for upcoming music and food festivals. Hotel and rental
rates were not being discounted, although incentives were offered
for time slots that were difficult to fill. In contrast, hotels
that depend heavily on government-sponsored bookings reported a
significant drop in business.

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Sixth District--Atlanta
Sixth District business contacts described economic activity as
expanding slowly in September, and most expect little change in
the near term.
Most retailers cited slow sales growth while auto dealers
continued to experience strong results. Hospitality reports
remained largely positive, with the exception of cruise-lines.
Residential brokers and builders signaled that housing conditions
continued to improve in many parts of the District as sales and
prices of new and existing homes slightly increased compared with
a year ago. Commercial development continued to improve, led by
multifamily construction. Manufacturers indicated that new orders
had softened while production levels only mildly increased.
Bankers saw improvements in demand for overall loans,
particularly those for housing purchases and refinances. Payrolls
expanded modestly on net, and firms noted some deceleration in
input prices, while wages remained relatively unchanged.

Consumer Spending and Tourism
Most District merchants reported that sales growth remained slow
in September. Discount retail operations outperformed traditional
department stores. Most retailers projected continued soft growth
in sales through the end of 2012. Contacts in the auto industry
reported that strong sales levels were maintained in September.

Leisure and business travel contacts continued to report strong
activity and an optimistic outlook for the remainder of the year.
Occupancy and room rates as well as convention bookings were
solid. While there has been some drop in traffic from Europe,
this was largely offset by strong visitor numbers from Canada and
Latin America. Cruise-line bookings and onboard spending remained
below expectations, but the industry anticipates some improvement
next year.

Real Estate and Construction
District residential brokers indicated that recent existing home
sales were up slightly compared with year-earlier levels. Buyer
traffic also remained ahead of year-ago levels. Brokers again
noted declining inventories, which continued to put upward
pressure on home prices in many markets. Contacts anticipate
modest home price gains over the next year; however, it is
expected that neighborhoods hard hit by foreclosures will
continue to experience home price weakness for some time. The
short-term outlook for home sales remained positive overall, with
the majority of contacts anticipating modest gains.

Reports from District homebuilders remained positive, as well.
Builders indicated that recent new home sales and construction
activity were up slightly from year-earlier levels and new home
inventories remained below year-earlier levels. Construction
remained mostly limited to more desirable locations, such as
those in highly regarded school districts. Southeastern builders
also reported that finished lot inventories varied across the
region, but most anticipate a decline in those inventories over
the next six months. Many indicated that financing terms remain
prohibitive for acquisition and development. New home prices were
slightly up compared with a year earlier. Homebuilders also
witnessed stronger buyer traffic. The outlook for construction
activity and new home sales remained positive.

Commercial contractors indicated that the pace of construction
continued to expand and backlogs were slightly up from earlier in
the year. Apartment development continued to dominate the
District's commercial real estate market. Multifamily rent growth
remained positive but has slowed somewhat in recent months.
Contacts indicated that the District's office and industrial
markets continued to make small improvements, while the retail
sector was described as sluggish. Many contractors reported that
clients remain hesitant to move ahead on new projects. However,
most anticipate that construction activity will be flat to
slightly up in 2013 compared with 2012.

Manufacturing and Transportation
While noting that new orders continued to slow, manufacturing
contacts reported mild increases in production, employment, and
finished inventory levels in September. Regional auto and auto
parts producers, as well as firms that supply materials to the
energy exploration and extraction sector, continued to report
strong levels of production, but most other durables
manufacturers noted a slight deceleration in output. Nondurables
output, with the exception of food and chemicals, remained soft.

A Southeast port contact reported record-setting cargo volumes in
fiscal year 2012, with increases across all categories. Despite
the underlying increase in demand tied to replacement of aging
truck fleets and the benefits of increased fuel-efficiency, new
orders for heavy-duty trucks have stalled recently. Rail contacts
reported that lumber shipments have increased. Air cargo
companies saw an increase in cargo volume tied to the launch of
various smartphones and computer tablets, which favor shipment by
air over other modalities.

Banking and Finance
Banking contacts reported an increase in demand for mortgage
loans for both purchases and refinances, although some contacts
noted fewer than half of the applications actually were approved.
The improvement in demand for purchase loans was driven by
activity in entry-level homes. Demand for auto loans remained
strong. Business lending had increased slightly; however,
contacts noted most of the increase was not organic loan growth
but was primarily from customers switching from other lenders or
credit cards.

Employment and Prices
Regional employment growth picked up slightly in September, but
remained muted. Reports indicated that sectors related to energy,
autos, and housing were experiencing most of the hiring activity.
Reports also cited deepening ties between private employers,
education representatives, and government officials in an effort
to address training deficiencies for in-demand positions. The
majority of contacts reported that stagnant demand is the major
reason behind sluggish employment trends, although uncertainty
related to fiscal policy continued to weigh on some firms' hiring
plans.

The majority of businesses contacted reported relief for some
input prices and little change in wage plans. Firms responding to
our Business Inflation Expectations survey reported that unit
costs were up 1.3 percent in September over the past year, which
is 0.3 percentage points lower than the August reading. Looking
forward, businesses' expectations for inflation also moderated
somewhat. On average, firms expected unit costs to rise 1.7
percent over the next 12 months. Though that number was down from
August, survey contacts noted that rising materials costs could
be a source of moderate upward price pressure going forward.
Along those lines, several manufacturing contacts indicated that
some input prices have increased recently, causing concern of
additional margin pressure.

Surveyed firms reported that sales levels were 7.6 percent below
"normal" times, though assessments varied widely by the size of
the firm. In particular, small and medium-sized businesses
reported experiencing about twice as much slack as their larger
counterparts, a finding that is consistent with anecdotal
insights gathered from our business contacts.

Natural Resources and Agriculture
After brief, precautionary shut downs related to Hurricane Isaac,
regional refiners fully restored operations with very little
damage from the storm. Energy industry contacts continued to
report that Gulf Coast refineries were undertaking investments to
increase production capacity following refinery closures
elsewhere in the country. Natural gas prices continued to
experience downward price pressures. Contacts continued to note
that inexpensive natural gas had prompted downstream
manufacturers to relocate overseas operations to the U.S.,
prioritizing locations near refining operations.

Agriculture contacts said that the rise in some crop prices,
resulting from the drought in the Midwest, had led to increased
crop production in the Southeast where soil conditions were more
favorable, but the overall rise in feed prices was putting
pressure on livestock producers. Compared with the same time last
year, prices paid to farmers for corn, rice, soybeans, beef, and
broilers were up while cotton prices were down.

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Seventh District--Chicago
Economic activity in the Seventh District continued to expand in
late August and early September, but again at a slow pace.
However, contacts remained guardedly optimistic that conditions
would improve; noting that at least some of the uncertainty
surrounding the outlook was likely to be resolved following the
November election. Growth in consumer spending was little
changed, while business spending increased at a slower rate.
Manufacturing activity edged lower, and growth in construction
moderated. Credit conditions continued to improve gradually. Cost
pressures increased some, due in large part to higher food and
energy prices. The drought led to an earlier start than normal
for the harvest, and corn and soybean prices moved down a
bit.
Consumer Spending
Growth in consumer spending was little changed in late August and
September following a slight pick-up in the previous reporting
period. Sales of back-to-school items were somewhat below
retailers' expectations despite higher store traffic volumes.
Contacts noted that the rise in gasoline prices had further
deterred consumers from increasing discretionary spending.
Retailers lowered their expectations for the holiday shopping
season, although they still expect holiday sales to match last
year's pace. Auto sales increased in August before moderating
some in September. Consumers responded strongly to model year-end
incentives, depleting inventories of 2012 models, and also
benefitted from easing auto credit conditions.

Business Spending
Business spending continued to increase slowly in late August and
September. A number of contacts reported that firms were delaying
hiring and capital expenditure decisions until they were more
certain about the outlook for federal tax and spending policies.
That said, some capital expenditures were proceeding as planned,
particularly on software and equipment. Inventories were
generally indicated to be at comfortable levels. Labor market
conditions were weaker on balance. The District unemployment rate
edged up and hiring remained selective. A recruiting firm
indicated that overall demand for their services was effectively
flat at last year's levels. Demand was greater in areas such as
health care, engineering, accounting, information technology, and
skilled manufacturing trades where firms are having difficulty
finding qualified candidates. Several manufacturers reported
stepping up training programs and increasing pay to meet staffing
needs in a number of skilled trades.

Construction and Real Estate
Growth in construction moderated some from the previous reporting
period. Homebuilders indicated that new single-family
construction continued to rise at a slow but steady pace, while
multi-family construction was stronger by comparison. Loan
standards for residential development remained tight, and many
homebuyers also continued to face tight lending standards. Home
prices edged higher, despite a rise in short sales.
Nonresidential construction increased at a slower rate. Contacts
indicated that new projects were progressing at a reduced pace;
some also suggested that many firms were putting off investment
decisions until after the November election. Elevated vacancy
rates remained a drag on new commercial construction, and
contacts noted that bank lending for investment properties
continued to be limited.

Manufacturing
Manufacturing production edged lower in late August and
September. Contacts reported that new orders had slowed
considerably from earlier in the year and that order backlogs
were coming down. Nonetheless, a number of contacts also
indicated that quoting activity for next year had picked up,
suggesting to them that the recent slowdown may be a pause due to
the upcoming election and uncertain fiscal situation. Although
the level of activity remained strong, demand for heavy equipment
softened over the reporting period, largely reflecting further
declines in the mining sector and a slower expansion of rental
fleets. Exporters generally noted weaker demand outside of North
America, particularly from Europe and Asia. Capacity utilization
in the steel industry was steady, while steel service center
inventories increased slightly. In contrast, the auto industry
continued to be a source of strength, and manufacturers of
building materials reported that activity had picked up with the
recent improvement in the housing sector.

Banking and Finance
Credit conditions continued to improve over the reporting period,
with both credit spreads and market volatility decreasing.
Banking contacts reported continued weak demand for business
loans. While loan pricing was roughly unchanged, contacts cited
greater demand for more flexible structures and longer financing
terms. Standards continued to ease on C&I loans, although
conventional financing remained difficult to obtain for many
small businesses. Asset quality improved further, surpassing the
expectations of some contacts. An exception was agricultural
lending, particularly the livestock sector, where the impact of
the drought on feed costs is putting stress on operators' balance
sheets. Consumer loan demand was again limited with moderate
increases in auto lending and mortgage refinancing, as auto loan
standards continued to ease and mortgage rates moved lower.

Prices and Costs
Cost pressures increased some in late August and September,
primarily due to a rise in food and energy prices. Contacts also
reported increases in the prices for construction materials like
lumber and drywall, while most metals prices were steady.
Wholesale food and energy price pressures rose, and retail
contacts noted an increase in pass-through to consumers. Wage
pressures remained moderate, although some upward pressure on
wages for high skilled positions was cited. A few contacts also
reported upward pressure on healthcare costs.

Agriculture
The corn and soybean harvest began a few weeks earlier than
normal across the District, as plants were dry due to the
drought. In some areas, late rains helped produce higher-
than-anticipated yields, but these made only a small dent in the
large drought-related losses. Crop quality also was an issue in
parts of the District. The drop in crop volume hurt grain
elevators relatively more than crop farmers, as payments from
crop insurance and sales at high prices offset much of the loss
in farm income from the drought. However, given insurers' limited
processing capacity and the large number of claims, already
existing delays in crop insurance payments are likely to get
worse. Corn and soybean prices eased down from their peaks,
providing a bit of relief for livestock producers, though most
operations remained unprofitable. Milk and cattle prices moved
higher, while hog prices fell. Many hog facilities are operating
below capacity, pointing to future reductions in supplies of
pork.

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Eighth District--St. Louis
Economic activity in the Eighth District has expanded at a
moderate pace since our previous survey. Recent reports of
planned activity from manufacturing and services contacts have
been positive. Residential real estate market conditions have
continued to improve moderately, while commercial and industrial
real estate market conditions have continued to be mixed. Overall
lending activity at a sample of small and mid-sized District
banks increased slightly from mid-June to early September.
Agricultural conditions in the District have generally improved
since our previous report.
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been positive
since our previous report. Several manufacturers reported plans
to hire new employees, open new plants, or expand operations,
while fewer manufacturers reported plans to lay off workers or
close plants. Firms in poultry processing, furniture, commercial
printing, boat, conveyor equipment, HVAC equipment, and
industrial gas manufacturing plan to hire new workers, open new
facilities, or expand current operations. In contrast, firms that
manufacture iron and steel products, mining equipment, and food
products plan to lay off workers or close existing facilities.

Reports of planned activity in the District's service sector have
been positive since our previous report. Firms in business
support, distribution, healthcare technology, and personal care
reported plans to hire new workers or expand operations. A
transportation services firm also announced large-scale hiring
plans for seasonal employees recently. In contrast, a financial
services firm announced plans to relocate workers to a new
location outside the District. Lastly, auto dealers in certain
parts of the District reported weak hybrid vehicle sales.

Real Estate and Construction
Home sales increased throughout most of the Eighth District on a
year-over-year basis. Compared with the same period in 2011,
August 2012 year-to-date home sales were up 15 percent in
Louisville, 6 percent in Little Rock, 11 percent in Memphis, and
17 percent in St. Louis. Residential construction increased in
the majority of the District. August 2012 year-to-date
single-family housing permits increased in the majority of the
District metro areas compared with the same period in 2011.
Permits increased 41 percent in Louisville, 27 percent in Little
Rock, 39 percent in Memphis, and 17 percent in St. Louis.

Commercial and industrial real estate conditions were mixed
throughout most of the District. A contact reported that
apartment occupancy rates in northwest Arkansas remained high in
Rogers, Bentonville, Fayetteville, and Springdale and strong
multi-family real estate activity is expected in the second half
of 2012. A contact in Louisville reported that office leasing
activity declined in the central business district, while it
remained strong in the suburban area. A contact in Memphis
reported that industrial real estate activity has improved.
Commercial and industrial construction activity improved
throughout most of the District. A contact in Little Rock
reported several new office building construction projects in the
Fayetteville metropolitan area. A contact in Louisville reported
that with demand for multi-family units remaining strong, plans
for apartment construction continued to increase. A contact
reported new mixed-use development plans in the Memphis
metropolitan area.

Banking and Finance
Total loans outstanding at a sample of small and mid-sized
District banks increased 1.4 percent from mid-June to early
September. Real estate lending, which accounts for 73.3 percent
of total loans, increased 0.2 percent. Commercial and industrial
loans, accounting for 15.8 percent of total loans, increased 1
percent. Loans to individuals, accounting for 4.7 percent of
total loans, increased 2.5 percent. All other loans, accounting
for 6.2 percent of total loans, increased 16.4 percent. During
this period, total deposits at these banks increased 0.2 percent.

Agriculture and Natural Resources
The condition of pastureland in the Eighth District has improved
significantly from early August to late September. Excluding
Mississippi, where 97 percent of pastureland was already rated as
fair or better, the fraction of pastureland in fair or better
condition has increased by at least 20 percentage points in all
District states. The share of crops in fair or better condition
has similarly increased across the District, although the
condition of the corn crop remains relatively unchanged. Harvest
completion rates have outpaced their 5-year averages for almost
all crops in all District states. In particular, harvest
completion rates for corn and rice are on average 30 percentage
points ahead of their 5-year averages. Total year-to-date coal
production in the states comprising the District, with the
exception of eastern Kentucky, was 9 percent higher through the
end of August than it was in the first eight months of 2011.
August production, however, was 6.8 percent lower than in August
2011.

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Ninth District--Minneapolis
The Ninth District economy expanded modestly since the last
report. Increased activity was noted in construction and real
estate, consumer spending, tourism, and professional services.
Energy and mining were steady at high levels, while agriculture
varied widely, with crop farmers generally in better condition
than animal producers. Meanwhile, activity slowed slightly in the
manufacturing sector. Labor markets tightened somewhat. Overall
wage increases remained subdued, although stronger increases were
reported in some areas. Price increases were generally
modest.
Consumer Spending and Tourism
Consumer spending increased moderately. Same-store sales at a
Minnesota-based retailer increased 4 percent in August compared
with a year ago. A Minneapolis area mall manger reported that
sales over the past two months were up about 4 percent compared
with a year earlier, while another Minneapolis mall reported that
while traffic was flat, sales were up somewhat. In North Dakota,
a mall manager reported that sales in August and September were
up more than 5 percent from last year. Recent sales increased at
a Minnesota-based women's apparel store. A domestic auto dealer
reported strong sales activity near the end of September and
solid commercial fleet sales. A representative of an auto dealers
association in North Dakota reported strong vehicle sales across
the state.

Tourism activity was above year-ago levels. In response to an
end-of-summer survey of lodging and camping businesses by
Minnesota's tourism office, 46 percent of businesses reported
higher occupancy than last summer, while 31 percent reported that
occupancy was the same. In addition, the number of visitors to
the Minnesota State Fair fell just short of a record. Tourism
officials in Montana reported strong occupancy levels during the
summer and expect this year to finish ahead of last year.

Construction and Real Estate
Commercial construction activity increased since the last report.
The value of commercial building permits issued in August more
than quadrupled from the same period last year in both the Sioux
Falls, S.D., and Billings, Mont., areas. A Minneapolis area
construction contact noted interest in building a regional
warehouse, while a research and development building was also
planned. Residential construction increased from a year ago. The
value of residential building permits in the Sioux Falls area in
August was up 11 percent from the same period last year. The
number of residential permits more than doubled in the
Minneapolis-St. Paul area in August compared with a year ago. The
value of residential permits issued in August more than doubled
in Billings.

Commercial real estate markets expanded at a slow pace. Vacancy
rates for Minneapolis office, industrial and retail properties
declined slightly since the last report, according to local real
estate professionals. Residential real estate market activity was
brisk. Home sales in mid-September were up 18 percent from the
same period a year ago in the Minneapolis-St. Paul area; the
inventory of homes for sale was down 30 percent. In the Sioux
Falls area, August home sales were up 44 percent, inventory was
down 14 percent and the median sales price rose 5 percent
relative to a year earlier.

Services
Activity at professional business services firms grew slightly
since the last report. According to an architecture firm, demand
for services picked up recently. An information technology
consulting company noted a recent uptick in the number of
projects. A data center opened in northern Minnesota. An
environmental consulting firm noticed increased activity
primarily due to oil and gas pipeline analysis. A logistics
consulting firm noted that recent freight volumes are about the
same as last year.

Manufacturing
The manufacturing sector weakened slightly since the last report.
A survey of purchasing managers by Creighton University (Omaha,
Neb.) found that manufacturing activity decreased in Minnesota
and South Dakota in August for the second month in a row, though
the rate of contraction was not as sharp as in July. Activity
increased in North Dakota, but at a slower pace than the previous
month. In contrast, an agricultural equipment maker announced
that it will open operations in Minnesota, and a machining firm
expanded operations in Michigan's Upper Peninsula.

Energy and Mining
Activity in the energy and mining sectors remained strong. Oil
and gas exploration decreased slightly in North Dakota and
increased in Montana; however, North Dakota oil production hit a
new record. A large railroad increased its capacity for carrying
crude oil out of North Dakota's Williston Basin. Several large
transmission-line projects were under way around the District. In
contrast, another Minnesota ethanol plant shut down, and a North
Dakota wind-turbine producer cut production, citing reductions in
demand and uncertainty over the expiration of a federal tax
credit. District iron ore mines continued operating at near
capacity. Sand mines saw increased demand from oil and gas
producers.

Agriculture
Agriculture was mixed, as crop farmers saw strong prices but
widely varying yields, while animal producers saw tighter profit
margins. Harvests were well ahead of schedule for crops around
the region, thanks to hot and dry conditions late in the summer.
District sugar beet producers were expecting a record harvest.
The condition of the corn and soybean crops remained much better
in Minnesota and North Dakota than in core corn belt states.
However, portions of Wisconsin and South Dakota were hit much
harder by drought. In addition, meat and dairy producers
struggled with higher feed costs. Prices received by farmers
increased for most agricultural outputs in September compared
with a year earlier; the primary exceptions were milk and hogs,
which saw price decreases.

Employment, Wages, and Prices
Labor markets tightened modestly. According to a survey by an
employment services firm, 20 percent of respondents in
Minneapolis-St. Paul expect to increase staffing levels during
the fourth quarter, while 6 percent expect to decrease staff. A
year ago, 12 percent anticipated increases, while 11 percent
expected decreases. A recent Minnesota Chamber of Commerce survey
showed that only 49 percent of companies responding said that the
state has enough skilled workers in their respective industries.
In Minnesota, a foreign information technology consulting firm
plans to add 300 workers and a telecommunications company
recently announced that it will add 150 call-center employees. In
contrast, a North Dakota wind turbine manufacturer announced that
it will lay off 300 workers. A hardboard plant in Minnesota
closed, affecting 140 workers, and a medical devices company laid
off 80 of its Minnesota workers as part of a reorganization plan.

Overall wage increases remained subdued, although stronger
increases were reported in some areas. For example, a health care
system recently offered substantial bonuses to recruit registered
nurses in eastern North Dakota.

Price increases were generally modest, with some exceptions
noted. Late September Minnesota gasoline prices increased almost
20 cents per gallon since late August. Metals prices increased
somewhat since the last report, as well as some lumber prices.

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Tenth District--Kansas City
The Tenth District economy expanded at slightly slower pace in
late August and September compared to earlier in the summer.
Consumer spending slowed somewhat, manufacturing growth was more
subdued, and transportation firms reported flat conditions.
Growth in commercial real estate activity slowed marginally, but
remained on a positive trend. Residential sales and construction
continued to grow at a solid pace. Drought conditions hurt
agricultural production, though farm incomes were generally
healthy due to higher crop prices and insurance programs. Energy
activity remained solid, and bankers noted steady loan demand,
better loan quality, and increased deposits. Prices rose
moderately, but wage pressures were contained outside of a few
skilled positions.
Consumer Spending
Consumer spending slowed modestly and contacts were less
optimistic about future sales in the months ahead. Retail sales
declined slightly from the previous survey, but remained above
year-ago levels. Several contacts cited political uncertainty and
rising gasoline prices as key reasons for the slowdown.
Expectations for future sales also eased somewhat, while store
inventories were largely unchanged. Growth in auto sales was less
robust than previous months, and expectations for future sales
weakened slightly. However, several auto dealers in Oklahoma
noted higher sales due to strong energy activity in their areas.
Contacts said sales were strongest for mid-sized family sedans
and crossover SUVs, while sales of full-size trucks and SUVs
remained weak. Auto inventories increased and most dealers
anticipated levels to increase further. Restaurant sales slowed
markedly and expectations also fell. Some contacts noted higher
food costs, rising gasoline prices, and overall consumer
uncertainty as reasons for the decline. Tourist activity edged
lower, slightly more than the usual seasonal slowing, and most
contacts expected further decreases in the months ahead.

Manufacturing and Other Business Activity
Manufacturing activity in the Tenth District continued to expand,
although at a slower pace than in previous months. Factory orders
and shipments declined, while future hiring plans generally
remained positive. Machinery production fell considerably since
the last survey, with some contacts citing European weakness and
political uncertainty as key reasons for the slowdown. In
contrast, metals and transportation production remained solid.
Manufacturers' capital spending plans moderated somewhat, but
firms still indicated overall plans for expansion. Transportation
activity was flat, although several firms reported higher
shipments of perishable food products and more firms reported an
increase in capital spending plans. Expectations for future
transportation activity eased slightly from the previous survey.
Sales growth among high-tech firms remained somewhat sluggish,
with several firms citing political uncertainty as a contributing
factor. However, expectations for future activity were more
positive, and capital spending plans were generally favorable.

Real Estate and Construction
Solid growth in residential real estate activity continued in
late August and September, while expansion of commercial real
estate activity slowed somewhat. Housing starts edged higher, and
limited availability of workers was reported as an issue for some
builders in states with low unemployment rates. Expectations for
future homebuilding remained favorable, and building materials
were generally available. Despite the improvement in housing
starts, sales at construction supply firms were considerably
slower, and many businesses were pessimistic about future sales.
Home sales continued to grow at a solid pace, though slightly
slower than in the previous survey. Residential realtors said
mid-range homes sold well, while the luxury home market was still
exceedingly slow. Several contacts noted a rise in sales to
investors, as higher rental rates have increased profit
potential. Expectations for future home sales flattened somewhat,
but prices were generally rising and expected to increase
further. Mortgage lending activity eased slightly, and one
contact noted continued tightening of underwriting guidelines.
Growth in commercial real estate activity slowed marginally from
the previous survey, but was generally solid overall and most
contacts remained optimistic about future months. Vacancy rates
continued to fall, but absorption rates flattened out. Office
prices and rents were also flat from the previous survey,
although some increases were anticipated in coming months.

Banking
In the recent survey period, bankers generally reported steady to
stronger loan demand, improved loan quality, and increased
deposits. Overall loan demand was favorable as most respondents
reported stable demand for commercial real estate and consumer
installment loans, while demand for residential real estate and
commercial and industrial loans edged slightly higher. Credit
standards remained largely unchanged in all major loan
categories. The majority of bankers reported improved loan
quality compared to a year ago, and nearly all banks expected the
outlook for loan quality over the next six months to be the same
or better. More institutions reported stronger deposit volume
than in the previous survey.

Energy
Energy activity remained solid in late August and September.
Contacts continued to report reduced activity related to natural
gas exploration, but oil rig counts remained strong and were
expected to stay relatively stable. Natural gas prices remained
very low, although several contacts anticipated a slight increase
in prices due to lower levels of exploration and winter supply
concerns. Crude oil prices climbed higher from the previous
survey period, which several contacts attributed to continued
Middle East conflict concerns. One producer noted an increase in
service activity particularly in Wyoming and North Dakota, but
contacts reported minimal shortages in equipment and labor.

Agriculture
Drought continued to hurt agricultural conditions across the
District. Dry, hot weather accelerated crop maturity, prompting
an early corn harvest with below-average yields. The soybean crop
was rated in mostly poor condition as harvest began. Winter wheat
planting was progressing normally, but low soil moisture could
delay emergence. Corn and soybean prices fell seasonally, but
concerns about global production underpinned wheat prices.
Despite drought conditions, high crop prices and crop insurance
payments were expected to boost farm income and more than offset
lower livestock profits due to higher feed costs. District
bankers indicated ample funds were available for qualified
borrowers to meet cash flow needs and finance carry-over debt.
Demand for farm loans remained modest amidst a pull-back in
capital spending. Farmland values rose further and were expected
to remain at high levels.

Wages and Prices
The majority of prices continued to rise moderately with further
increases expected, but wage pressures were mostly contained
outside of a few skilled positions. Retail prices edged higher,
and were anticipated to rise further in coming months. Prices of
manufacturing materials continued to increase, although fewer
firms planned on raising selling prices. Construction materials
prices also moved higher, particularly for oil-related products
such as shingles. Transportation firms reported higher input
prices, and increased food costs continued to impact profit
margins and selling prices for restaurants. Many contacts noted
that rising gasoline prices have increased input costs and cut
sales volumes. Wage pressures were still generally contained in
most industries, although some firms reported continued
difficulties in obtaining skilled labor, such as truck drivers,
construction workers, software programmers, and engineers.

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Eleventh District--Dallas
The Eleventh District economy expanded at a moderate pace over
the past six weeks. Energy activity remained strong, and
construction and real estate activity picked up as housing demand
strengthened. Demand for business services improved slightly, and
transportation services activity continued to expand. Reports on
manufacturing activity were mixed. Growth in retail and auto
sales slowed over the reporting period, but Eleventh District
sales continued to outperform the national average, according to
respondents. Lenders noted steady loan demand. Agricultural
conditions improved slightly. Price and wage pressures were
modest over the reporting period, and employment levels continued
to edge up. Many respondents across industries said continued
uncertainty about upcoming elections was clouding outlooks.
Prices
Most reporting firms said prices were steady. Several contacts in
the transportation services industry noted higher diesel prices
led to higher costs. Shipping firms expect higher ground and air
prices as a result. Airline industry contacts noted that business
travelers were very price sensitive and soft demand was keeping a
lid on fares. Food and cattle producers noted price increases due
to continued commodity price pressures.

The price of WTI rose during the reporting period, reaching
nearly $99 per barrel. Natural gas prices remained depressed.
Retail and on-highway prices of both gasoline and diesel ended
the reporting period slightly higher. Contacts noted that
Hurricane Isaac had little impact on energy pricing. The prices
of petrochemical products were flat to slightly up over the past
six weeks.

Labor Market
Employment held steady or increased at most firms. Shortages of
truck drivers continued to be reported in several industries.
Accounting and legal firms noted increased hiring and said
compensation has risen this year. Staffing firms reported
additional hiring in response to high levels of demand, but there
were no reports of pressures on wages or salaries. Skill
shortages remained an issue for energy services firms, although
some large firms noted slight easing. Retailers said hiring
increased since the last report and expected holiday hiring to be
stronger than last year.

Manufacturing
Overall demand for construction-related products was mixed over
the last six weeks. Producers of stone, clay, glass and lumber
reported steady to slightly increased demand, with particular
strength in residential activity. Fabricated metals contacts said
growth in demand had slowed. Reports from primary metals contacts
were mixed, although a large electrical wire manufacturer said
demand in August was stronger than in any other month this year.
Across the board, contacts noted uncertainty in their outlooks
due to the upcoming election.

High-tech manufacturers said sales growth slowed modestly over
the reporting period. Most contacts attributed the slowdown to
weakened international demand and lower forecasts for world
economic growth. Weaker demand was noted across a broad range of
products, including industrial, computers and communications
infrastructure. Contacts expect demand to remain weak through
year-end.

Demand for paper products increased in line with normal seasonal
patterns. Food producers noted increased business over the last
thirty days due to a slight pickup in consumer demand. Reports
from most transportation equipment manufacturers were mixed;
aviation manufacturing orders were down slightly while other
firms noted flat to increased activity.

Petrochemicals producers said demand remained mostly flat since
the last report. Ethylene production fell to a three-year low as
plants went offline for maintenance and improvement. Ethylene and
polyethylene margins remained relatively stable and largely
healthy, although exports softened. Gulf Coast refiners said
operating rates remained over 90 percent, and strong export
demand was preventing a buildup in domestic inventories. Refinery
margins rose to the highest level since 2008 in August and have
since remained very healthy.

Retail Sales
Retail sales growth softened over the reporting period, and sales
are up slightly year-over-year. Sales in the Eleventh District
continue to outperform the nation, according to two national
retailers. Contacts noted that holiday hiring has begun or will
begin soon, and hours worked are up from the previous report.
Commodity input costs are easing, but the drought has caused
prices for grains and feedstock to rise. The outlook for the rest
of the retail quarter, which ends in October, is mixed but
contacts are cautiously optimistic for the fourth quarter.

Automobile sales were flat over the past six weeks but are up
year-over-year. Contacts expect a modest increase in selling
prices with the 2013 models due out soon. Outlooks are generally
uncertain because of the election and consumer confidence, but
fourth quarter is expected to be better year-over-year.

Services
Staffing firms said demand growth slowed slightly but is expected
to turn around in coming weeks. Demand from the steel industry
was very strong, with contracts extending through 2014.
Engineering and mortgage processor jobs were in high demand,
while the need for oil workers has "become less crazy." There
were fewer requests for workers in the plastics industry.
Outlooks remained fairly optimistic.

Accounting firms noted a slight increase in activity. Demand for
insurance and audit services experienced positive growth, while
that for advisory and tax services was flat to slightly down.
Demand for energy-related services remained strong. Legal
contacts said overall demand for services was not much changed
since the last report. However, activity related to energy,
labor-services and real estate had increased. Outlooks were
cautiously optimistic.

Reports from transportation service firms were mostly positive.
Railroad contacts said volumes picked up since the last report.
Motor vehicle shipments continue to be strong, and contacts noted
healthy volumes of some construction-related products, including
lumber and wood and crushed stone. Container volumes continued to
increase and shipping firms said small parcel volume growth had
recently accelerated, led by improvements in wholesale and retail
trade. Air cargo volumes continued to decline due to weakness in
the international sector.

Airlines noted softer passenger demand since the last report,
citing weakness in Europe and Asia. Respondents were cautious in
their outlooks, and slightly more pessimistic than six weeks ago.

Construction and Real Estate
Single-family housing activity continued to increase at a good
pace over the past six weeks. Contacts said new and existing home
sales outpaced expectations, and new home construction activity
increased. Inventories of both new and existing homes remained
tight, leading to price gains. Apartment construction picked up
since the last report, and outlooks for the multifamily sector
remain quite optimistic. Leasing activity in the office and
industrial real estate sectors remained steady at a good pace.
While commercial construction remains at low levels, contacts
expect activity to improve.

Financial Services
Overall, financial firms reported flat loan demand. Auto loan
demand, particularly for new autos, was a bright spot, and
energy-related lending remained strong. Business lending and
commercial real estate lending were weak. Loan pricing remained
very competitive and has squeezed profit margins. Loan quality
continued to improve as delinquency rates trended down and new
loans are granted to more creditworthy customers. Deposits kept
growing even as rates remained very low. Outlooks were mixed, and
contacts said fiscal worries were negatively impacting loan
demand.

Energy
Respondents at energy-related firms said business remained strong
with long lead times, although the District active rig count
declined modestly over the reporting period. Producers
concentrated their production on oil, as the prices of both
natural gas and natural gas liquids remain very low. Outlooks
were essentially flat. Activity was robust but there is little
hope for further improvement through the end of the year.

Agriculture
The District remained largely in drought, although scattered
rainfall improved soil moisture conditions in several areas.
Crops were mostly in fair to good shape. Production is expected
to be better than last year--when the drought was much more
severe in the Eleventh District--but below average because of
ongoing dry conditions. Grain prices remained high due to the
Midwest drought, adversely affecting Texas' large livestock
sector as feed costs reached record highs.

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Twelfth District--San Francisco
Economic activity in the Twelfth District grew at a modest pace
during the reporting period of mid-August through late-September.
Upward price pressures remained limited overall, and upward wage
pressures remained muted. Sales of retail items rose slightly,
and demand for most business and consumer services gained further
on net. District manufacturing activity edged up. Agricultural
output was mostly steady, while activity continued to trend up
for providers of energy resources. Home demand in the District
showed continued signs of improvement, and demand for commercial
real estate was mainly stable. Financial institutions reported
overall loan demand was unchanged or up somewhat on
balance.
Wages and Prices
Price inflation remained quite limited for most final goods and
services during the reporting period. Prices increased overall
for some energy items including electricity, crude oil, and
retail gasoline. Natural gas prices remained near historically
low levels. Contacts noted high feed prices are passing through
to grocery stores and restaurants. Contacts in the tech sector
reported slightly lower prices of some technology-related
products. For most products and services, vigorous competition
among firms and cost-conscious purchasing behavior by consumers
continued to keep price inflation in check.

Contacts in most sectors reported very limited upward wage
pressures. Moderate wage increases in the 2 to 3 percent range
were noted for employees in some manufacturing sectors, although
lower levels of staffing were also reported. Contacts continued
to note wage gains for workers with specialized skills in the
information technology sector. Some upward pressure on wages of
skilled construction workers was noted, as well. For the
remainder of 2012, most contacts reported limited hiring plans,
suggesting that upward wage pressures will remain subdued.

Retail Trade and Services
Retail sales rose further overall. Contacts reported sales were a
bit stronger relative to the prior reporting period. Discount
chains and online retailers continued to outperform traditional
department stores. At grocery stores, consumer spending was soft
as shoppers continued to shift their purchasing decisions in
favor of cheaper products. Contacts reported a strong pace for
auto sales, significantly above the pace from the same period
last year. Demand for used vehicles also remained robust.

Demand for most business and consumer services gained on net.
Sales continued to grow for a wide variety of technology
services, with expectations for further rapid growth in selected
segments, such as cloud computing services. Demand for legal
services was steady. For providers of health-care services,
demand was largely stable. Demand picked up further for
restaurants and other food-service providers. Some contacts in
the District's travel and tourism sector reported improvement in
conditions overall.

Manufacturing
District manufacturing activity edged up on balance during the
reporting period of mid-August through late-September. Production
activity remained at high levels for makers of commercial
aircraft and parts. Manufacturers of wood products reported
stronger than expected output and sales. New orders improved
somewhat for manufacturers of semiconductors and other technology
products. Demand for steel was mostly stable, albeit at low
levels, while sales of processed scrap metal fell further,
largely as a result of sustained weak demand abroad. For
petroleum refiners, capacity utilization rates increased to the
highest levels in years, as growing export sales offset
relatively weak domestic demand for refined petroleum products.

Agriculture and Resource-related Industries
Agricultural activity was mostly stable, and extraction activity
of natural resources used for energy production continued to
expand. Contacts noted continued efforts by agricultural
businesses to increase their productivity. Reports indicated that
demand for cotton was strong. Higher grain and feed prices
prompted District livestock producers to reduce herd sizes.
Favorable weather conditions in some parts of the District helped
stabilize production. Extraction activity for petroleum and
natural gas remained at high levels or expanded a bit further on
net.

Real Estate and Construction
Home demand in the District showed continued signs of
improvement, while demand for commercial real estate was largely
unchanged. Although still well below its historical average, the
sales pace for new and existing homes picked up further in many
areas. Contacts noted that pent-up demand may spur additional
gains in coming months. Contacts reported a decrease in the
inventory of available homes and a noticeable increase in
construction activity. On the nonresidential side, contacts
observed a reduction in commercial property vacancies in parts of
the District.

Financial Institutions
District banking contacts reported that loan demand was unchanged
or up somewhat compared with the prior reporting period. Some
contacts reported that business loan demand inched up, although
some of the new activity was for refinancing rather than
expansion. Reports continued to highlight ample liquidity and
stiff competition among lenders to provide credit to
well-qualified business loan applicants. Contacts indicated that
some borrowers received multiple offers to finance projects.
Demand for consumer credit remained relatively strong, reflected
primarily in high lending activity for automobile and home
purchases.